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Introduction to Industrial Management.pptx

  1. © 2006 Prentice Hall, Inc. 12 – 1 Chapter One Basic Management Concepts and Industrial Organization
  2. 2 What is Management? Who are Managers ? Where do they work? AMU-SC | By: Ashenafi B. Questions
  3. • What is this little boy doing? • Do you know where he is going? • Can you see where he is going? • Do you know what could happen if he falls in the water? • Can you really see what the consequences are going to be? • Have you got the big picture in mind? 3 Cont’d… AMU-SC | By: Ashenafi B.  With anything that one does in life, you have to start with the end in your mind.  You decide what you want to achieve and then you decide how you will work towards achieving it. This is what management is!!
  4. Chart the Path Put Stepping Stones in Place So That You and Your Followers Can Reach Our Vision 4 Cont’d… AMU-SC | By: Ashenafi B.
  5. Vision Reality Greatness An activity to manage the creative tension between current reality and future reality / vision. NOW FUTURE 5 Courage Cont’d… AMU-SC | By: Ashenafi B.
  6. 6  In general, "management" identifies a special group of people whose job is to direct the effort and activities of other people toward common objectives.  Simply, management gets things done through other people by planning, coordinating and directing the activities of an organization.  The decisions and judgments made are normally oriented to the needs/goals of the organization. Cont’d… AMU-SC | By: Ashenafi B.
  7.  Therefore, management is the use of people and other resources to accomplish the objectives, or to attain the goals of an organization efficiently & effectively. Objective:  Maximize the potential of their people and coordinate their efforts to attain some predetermined goals. Resources:  Human (i.e. Skills & Knowledge); and  Non-Human (i.e. Capital, Land, Plant & Equipment, and Technology). Cont’d… AMU-SC | By: Ashenafi B. 7
  8. Management as a Unifying Force Management Financial Resources Plant & Equipment Land Employees Management is the process of bringing human and non-human resources together and coordinating them to accomplish organizational goals. AMU-SC | By: Ashenafi B. 8
  9. 9 Manager Creditors & Suppliers Superiors Customers Coworkers & Peers Government Agencies Subordinates Community Manager’s Interactions with Other Groups of People AMU-SC | By: Ashenafi B.
  10.  Puts together the factors of production to produce goods and services.  Make business decisions.  Take risks for which the reward is profit.  Acts as an innovator by introducing new products, new technology and new ways of organizing business. Importance of Management AMU-SC | By: Ashenafi B. 10
  11. How is a manager different from an entrepreneur? Manager:  A manager is a person responsible for planning and directing the work of a group of individuals, monitoring their work, and taking corrective actions when necessary. Entrepreneur:  He is a person who establishes business unit and utilizes the other factors of production like land, labor and capital. AMU-SC | By: Ashenafi B. 11
  12. Functions of Management 12  The subject of management can be considered a process involving certain functions that a manager performs: Functions of Managem ent Decision making Planning Organizing Staffing Controlling Directing AMU-SC | By: Ashenafi B.
  13. Decision making 13 1. Fact gathering process to lay a solid foundation for understanding the situation; 2. Recognition of the right problem; 3. Generate as many alternatives as possible; 4. Select the best alternative; and 5. Communicate the decision to others AMU-SC | By: Ashenafi B.  Decision can be defined as an act involving mental process at a conscious level in choosing a course of action from available alternatives for the purpose of attaining a desired result. Fig. Five steps of Decision making
  14. 14 Planning involves the predetermining course of action to be taken in relation to the known event. It also includes anticipating the possibilities of future problems that might appear. It is a systematic activity which determines when, how and who is going to perform a specific job. It is rightly said:  “Well plan is half done”; and  “Failing to plan means planning to fail.” Planning AMU-SC | By: Ashenafi B.
  15. 15  The increased importance of planning in a business enterprise results from various changes in the environment like:  changes in technology;  government policy;  overall economic activity;  in the nature of competition; and  in social norms and attitudes. Cont’d… (why we plan?) AMU-SC | By: Ashenafi B.
  16. 16  There are different planning techniques that are executed in different level of an organization:  Strategical planning;  Tactical planning; and  Operational planning. Cont’d… AMU-SC | By: Ashenafi B.
  17. AMU-SC | By: Ashenafi B. 17 Strategic Planning • Strategic planning is an organizational management activity that is used to set priorities, focus energy and resources, strengthen operations to ensure that employees and other stakeholders are working toward common goals, establish agreement around intended outcomes or results, and assess and adjust organization’s direction in response to a changing environment.
  18. AMU-SC | By: Ashenafi B. 18 Tactical Planning • It involves breaking down a long-term strategic plan into smaller and more distinct short-term plans. • Companies and teams frequently use this type of plan when they have long-term goals that extend further than two or three years. Figure: Six Steps of Tactical Planning Figure: Six Steps of Tactical Planning
  19. AMU-SC | By: Ashenafi B. 19 Operational Planning • An operational plan is a practical document which outlines the key activities and targets an organization will undertake during a period of time, usually one year. • It is often linked to funding agreements as well as being linked overall to the organization’s strategic plan.
  20. 20 Organizing may be defined as the structure and process by which a group allocates its tasks among its members, identifies relationships and integrates its activities toward common objectives. Organizing function of management brings together human and physical resources in an orderly manner and arranges them in coordinated pattern to accomplish planned objectives. Each organizational resource (human, material, finance, etc.) represent an investment from which the management system must get the return. Therefore, these resources should be organized properly for efficient and effective use of the same. Organizing AMU-SC | By: Ashenafi B.
  21. 21  Good communication between the management and employees,  Sound basis to evaluate the performance of individuals and groups,  Well defined areas of works for each employee,  Coordination of activities of various individual, groups, etc.,  Effective delegation and decentralization,  Adequate and effective control,  Difficulty in empire building in any segment of the enterprise, and  Stimulation of independent, creative thinking and initiative on the part of the employees. Benefits of Organizing Function AMU-SC | By: Ashenafi B.
  22. 22 There are some principles of organization which are guidelines for thought to operating managers and researchers in an organization. These are: 1. Unity of Command (one mission, one boss); 2. Exception Principle (a method, or plan of supervision under which only significant deviation from normally expected results are brought to the attention of a supervisor for consideration & decision); 3. Span of Control (area of activity & number of functions, people, or things for which an individual or organization is responsible); 4. Scalar Principle (clear definition of authority); 5. Departmentalization (the process grouping activities); and 6. Decentralization (distribution/delegation of activities). Principle of Organization AMU-SC | By: Ashenafi B.
  23. 23 Reflecting on plans and objectives Establishin g major tasks Dividing major tasks into subtasks Allocating resources and directives for subtasks Evaluating results for organizing strategy  Steps that are important when organizing an enterprise. Cont’d… AMU-SC | By: Ashenafi B.
  24. 24 Staffing deals with the workers and is worker- oriented. This function includes the process of placing the right person in the right organizational position. Or, the process of matching the people and the job. It is done by careful preparation of specifications necessary for the positions and raising the performance of personnel by training and retraining of people to fit the needs of the organizational position. Staffing AMU-SC | By: Ashenafi B.
  25. 25  Control is the process that measures current activities (quantitatively if possible), and guides it toward some predetermined goal, plan, policy, standard, norm, decision rule and criterion or yardstick.  The essence of control lies in checking and correcting actions against desired results in the planning process. Controlling AMU-SC | By: Ashenafi B.
  26. 26  Controlling includes ensuring that employees perform the work allocated to them in the ways laid down, and with no wastage or duplication of time, effort or materials.  That involves much more than simply instructing a given number of employees to perform work; they must be supervise and manage, so that their efforts achieve the desired results.  This requires that they are motivated, checked, guided, taught and encouraged. Cont’d… AMU-SC | By: Ashenafi B.
  27. 27  There are seven principles of control. Strategic Point Control Feedback Flexible Control Organizational Stability Self-Control Direct Control Human Factor Cont’d… AMU-SC | By: Ashenafi B. 1 2 3 4 5 6 7
  28. 28  For the same idea, different organizations use different terms such as:  Leading  Executing  Supervising  Ordering and  Guiding  What ever terms are assigned to it, the idea of directing is to put into effect the decisions, plans and programs that have been worked out. Directing AMU-SC | By: Ashenafi B.
  29.  A manager’s assigned to predefined job duties and authority needed to fulfill, those duties are what determine management level. Top Management Middle Management Supervisory Management Management Hierarchy AMU-SC | By: Ashenafi B. 29 Figure: three distinct levels of management
  30. Top Management  Made up of individuals who have the possibility of making the decisions and formulating policies that affect all aspect of the firm’s operations.  President,  Vice President,  Chief Executive Officers,  Executive Vice President, etc. Cont’d… AMU-SC | By: Ashenafi B. 30
  31. Middle Management  Includes all managers above the supervisory level but below the level where overall company policy is determined.  Middle managers manage supervisors.  Regional Sales Manager  Academic Deans (Universities)  Director of Nursing (Hospitals) Cont’d… AMU-SC | By: Ashenafi B. 31
  32. Supervisory Management  Supervisors manage workers who perform the most basic job duties required in the business firm.  Sales Manager  Academic Department Chairperson (Universities)  Nursing Supervisors (Hospitals) Cont’d… AMU-SC | By: Ashenafi B. 32
  33. 33  It serves as a linkage by which the other functions explained are tied together.  There are three types of communications in an organization. AMU-SC | By: Ashenafi B. Communication Among Managerial Hierarchy 1. Vertical 2. Horizontal 3. Informal
  34. 34 Organization charts show the flow of authority and the channels through which the vertical and downward communication flows; Horizontal type whereby, managers on the same level of an organization coordinate their activities without referring all matters to their superior; and The informal type of Communication Types of Communications AMU-SC | By: Ashenafi B.
  35. Skills of a Good Manager 35 The Dual Aspects of any Manager's Job  The modern 'world of industry' is very complex, and this complexity has led to what is called “specialization” and to the "division of labor” by which different people specialize in performing − and become specialists in − different types of work.  It follows, therefore, that the “technical” or "functional”, i.e. the specific work of different managers can and does vary enormously. AMU-SC | By: Ashenafi B.
  36. 36  Nevertheless, all those different types of managers, and all others, should have considerable knowledge of the technical aspects of their jobs in addition to being proficient managers of people.  It is, in any case, not easy to train, supervise and control the work of others without knowing what they are or should be doing. Cont’d… AMU-SC | By: Ashenafi B.
  37. 37  So the duties of any manager or supervisor comprise two quite different aspects: 1) Technical or functional aspect: which is concerned with the work to be performed by his/her enterprise or department or section; and 2) Managerial aspect: which is concerned with the people who are to perform that work in his/her enterprise or department or section. Cont’d… AMU-SC | By: Ashenafi B.
  38. 38  Some estimates show that a managing director may spend between 80% to 90% of his/her working hours on managerial matters and only 10% to 20% of his/her time on the technical activities.  Whilst senior/middle managers may spend approximately 50% of their work time on managerial activities and 50% on technical activities; and  Supervisors and foremen may spend some 70% to 75% of their time on technical activities and only 25% to 30% of their time at work on the supervision of their subordinates. Cont’d… AMU-SC | By: Ashenafi B.
  39. 39 Cont’d… AMU-SC | By: Ashenafi B.
  40. 40 Human relations Skills  Are the abilities needed to resolve conflict, motivate, lead, and communicate effectively with other workers.  Equally important at all levels of management. Conceptual Skills  Are the abilities needed to view the organization from a broad perspective and to see the interrelations among its components.  Are most important in strategic (long-range) planning; therefore they are more important at top level executives. Additional Management Skills AMU-SC | By: Ashenafi B.
  41. 41 Cont’d… AMU-SC | By: Ashenafi B.
  42. Personal Qualities Needed for Managerial Success 42 Some of the more important personality traits of a successful manager are the following: 1. Ability to Think Clearly and Logically:  A manager needs to be able, as the result of training, to approach each situation and problem positively and objectively, without prejudgment or being distracted by irrelevancies.  This requires him/her to think in a clear, orderly fashion and to marshal and arrange logically in his/her mind all the facts and information available to him/her. AMU-SC | By: Ashenafi B.
  43. 43 2. The Abilities to Make Decisions and to Act Decisively:  These follows on from the foregoing, and also require a measure of self-confidence; a belief in one's own ability to succeed in solving problems in the right way, and in one's own ability to deal effectively with different situations and sets of circumstances. Cont’d… AMU-SC | By: Ashenafi B.
  44. 44 3. The Ability to Use Initiative:  From time to time a manager is bound to come across problems or situations which are outside his/her range of experience or outside the normal scope of his/her responsibly.  In such circumstances, particularly if action is urgently needed, the manager must not simply leave the matter until his/her senior is available or wait to be told what to do, but must initiate - that is, lead the action without waiting to be prompted. Cont’d… AMU-SC | By: Ashenafi B.
  45. 45 4. Ability to Handle Conflicts:  A good manager is calm, able to listen, is positively responsive to criticism and is able to handle conflicts and differences in a constructive manner.  In order to handle conflicts well, a manager must be confident, self-assertive, fair and dominant. He/she should be highly tolerant of stress, as conflicts generally lead to stress and tension. This would require a sound mind in a sound body. Cont’d… AMU-SC | By: Ashenafi B.
  46. 46 5. Ability to Adapt Changes and be Flexible:  Any manager must be able to adapt to changes and, if necessary, to cope with changed circumstances, and ensures that his/her subordinates also do so.  Adaptability to different situations and flexibility of mind are also necessary in the routine, day-to-day running of a section, department or an entire enterprise. Cont’d… AMU-SC | By: Ashenafi B.
  47. 47 6. Ability to Be Emotionally Stable:  In dealing with different problems and situations, some of which might be irritating, annoying, worrying or hating − or include emotional displays (e.g. tearful women, angry voices, etc.) by others, a manager must be sufficiently mature to keep calm and collected.  He must be able to keep control over his own emotions and his temper whatever may the provocation be, and be able to concentrate his attention on the matter in hand, thinking clearly, logically, and avoiding hasty reactions. Cont’d… AMU-SC | By: Ashenafi B.
  48. 48 7. Stamina and Concentration:  Mental fitness to work long and hard without undue stress or strain.  Besides mental alertness, a manager needs to be able to concentrate his/her mind on the matter in hand even under the most tiring circumstances and/or when he is under pressure; to focus or keep one's mind intently fixed over a long period can be tiring, particularly as there will be many different matters requiring attention and concentration during a manager's working day. Cont’d… AMU-SC | By: Ashenafi B.
  49. 49 8. Drive and Determination:  A manager needs the urge and enthusiasm to stimulate action, not only by him/herself, but by other people as well.  He/she also needs the determination to keep going whatever the difficulties, adapting his/her actions and decisions to overcome problems encountered, and pressing on to a successful conclusion. Cont’d… AMU-SC | By: Ashenafi B.
  50. 50 9. Leadership:  Leadership is the ability of a person to exert a positive influence over the thoughts, behavior and actions of others, and then to direct their thoughts, behavior and actions towards a common goal or objective. Cont’d… AMU-SC | By: Ashenafi B.
  51. © 2006 Prentice Hall, Inc. 12 – 51 Part-II Industrial Management (IM)
  52. AMU-SC | By: Ashenafi B. 52  It is a combination of two words: ‘Industrial’ and ‘Management’. Industrial refers to industry.  Industry is defined as the application of complex & sophisticated methods to the production of economic goods & services.  In recent context, “Industry” does not simply refer to activities related to manufacturing, trade or business. It has a broader meaning and includes all sorts of operating or working organizations, such as business, educational, governmental and religious.  On the other hand, management is a process used to accomplish organizational goals. Industrial Management (IM)
  53.  Therefore, IM may be defined as: “The branch of engineering that deals with the creation and management of systems that integrates people, materials, and energy in productive ways.” or, It facilitates creation of management systems and integrates the same with people and their activities to ensure efficient and effective utilization of resources.  The subject emphasizes studying the performance of machines and so also the people.  IM, therefore, is structured approach to manage the operational activities of an organization. AMU-SC | By: Ashenafi B. 53 Cont’d…
  54. AMU-SC | By: Ashenafi B. 54 The ultimate objective of IM is to produce the right quantity of goods with right quality at the right time. These are attained through management of: 1) Manufacturing Cost: The unit cost of the product should be estimated carefully and every effort should be made to stick to the cost standard.  Reduction in the variable & fixed costs.  Increase in the volume of production, so that the fixed costs may be spread over, more production resulting in the per unit absorption.  The allocation of the fixed overheads should be made on scientific basis. Objectives of IM
  55. AMU-SC | By: Ashenafi B. 55 2) Machinery and Equipment: i. Selection and acquisition of machinery and equipment according to production process requirement. ii. Utilization of machinery and equipment through repair, maintenance and maximum occupancy of the machines. 3) Materials:  The materials objectives must be prescribed in terms of units, birr value and space requirements. The per unit materials costs should be specified and efforts should be made to increase the inventory turnover of all types of inventories - raw materials, work-in-progress and finished goods. Cont’d…
  56. AMU-SC | By: Ashenafi B. 56 4) Manpower:  Manpower must be closely allied with the objectives of selection, placement, training, rewarding and utilization of resources. Usually, these objectives are considered in terms of employee turnover rates, safety measurements, industrial relations, absenteeism, etc. 5) Others, like Manufacturing service (i.e. installation of important facilities), product quality (i.e. by product specification or consumers) and manufacturing schedule. Cont’d…
  57. Scope of IM & EE  Initially, the scope and application of industrial management was restricted to manufacturing industry.  Later on, it spread to non-manufacturing activities such as construction & transportation, farm and air-line operations and maintenance, public utilities, government & military operations.  Where as engineering economics helps to make informed financial evaluation, decision and financial report of engineering projects, investment, lease/buy decisions. AMU-SC | By: Ashenafi B. 57
  58. AMU-SC | By: Ashenafi B. 58 Major Applications of IM
  59. AMU-SC | By: Ashenafi B. 59 Concept/Summary of Industrial Management IM is the organizational process that includes strategic planning, setting objectives, managing resources, deploying the human and financial assets needed to achieve objectives, measuring results, and recording and storing facts.
  60. © 2006 Prentice Hall, Inc. 12 – 60 Organizational Structure
  61. Organization:  A deliberate arrangement of people brought together to accomplish a specific tasks.  Common characteristics of organization: - Goal, - People & Resource, and - Structure  Therefore, an organization is a stable, formal social structure that takes resources from the environment and processes them to produce an outputs. What is Organization? AMU-SC | By: Ashenafi B. 61
  62. Based on purposes for which they are formed: 1. Profit-oriented Organization (Product/Services)  Return on investment, or for making money. 2. Non-profit-oriented Organization  For offering services like;  Educational Institutions, Hospitals, social welfare agencies like red cross. 3. Mutual Benefit Organizations  To advance members’ interest like;  Political parties, labor unions, trade associations. AMU-SC | By: Ashenafi B. 62 Types of Organization
  63. 63  An organizational structure is a system that outlines how certain activities are directed in order to achieve the goals of an organization. These activities can include rules, roles, and responsibilities.  It also determines how information flows between levels within the company.  Planned organizational structure must not be overlooked in the establishment of a new business. AMU-SC | By: Ashenafi B. Organizational Structure
  64. AMU-SC | By: Ashenafi B. 64 Step-1 • The activities which will be necessary to achieve the objectives of the business must be established. Step-2 • The various related activities should be grouped together into departments; the most logical grouping is by 'function', that is, by type of activity: production, marketing, finance, etc. Cont’d… • The stages in the setting up of an effective organizational structure are:
  65. AMU-SC | By: Ashenafi B. 65 Step-3 • The activities of a particular department will be further divided, and grouped together into sections; Step-4 • An organization chart should be produced to depict the proposed organization; Cont’d…
  66. AMU-SC | By: Ashenafi B. 66 Step-5 • Based on estimates of the volume of work, which will be performed by each section, the number of staff required must be determined. • Depending on the type of work to be performed and on other factors, the numbers of supervisors, junior and middle managers per section and department must be given thought. Cont’d…
  67. AMU-SC | By: Ashenafi B. 67 Step-6 • The special knowledge or talents required by departmental and sectional managers must be laid down. Coupled with, this is the necessity to lay down the extent and the limits of authority and tile duties of all those who will hold managerial positions and the authority to delegate must be provided. Cont’d…
  68. AMU-SC | By: Ashenafi B. 68 Step-7 • The equipment necessary for the proper functioning of each section and department must be decided upon, and provision made for its positioning when considering the layout of the accommodation for each unit. Step-8 • To ensure effective coordination of all parts of the enterprise, effective procedures and systems of communication must be devised and installed. Cont’d…
  69. 69  Well known types of organizational structures are namely: I. Line; II. Functional; III. Line and Staff; IV. Matrix Organization; V. Divisional Organization; and VI. Project Organization; AMU-SC | By: Ashenafi B. Types of Organizational Structure
  70. I. Line Organizational Structure 70 AMU-SC | By: Ashenafi B.
  71. II. Functional Organization Structure 71 AMU-SC | By: Ashenafi B.
  72. III. Line and Staff Organization 72  In this case, the line managers control the primary functions, such as marketing and production, which are directly concerned with achieving the objectives of the business; whilst the staff managers are generally involved with secondary functions which assist the smooth and efficient running of the primary functions. AMU-SC | By: Ashenafi B.
  74. V. Matrix OS (i.e., Mostly for Project) 74  These are temporary organizational structures formed for specific projects for a specific period of time and are dismantled, once the required goal is achieved.  The specialists are selected primarily on the basis of task- related skills and expertise rather than decision making experience or planning ability.  These structures are very useful when:  The project is clearly defined in terms of objectives to be achieved and the target date for completion of the project.  The project must be separate and unique and not be a part of daily work routine of the organization.  There must be different types of activities which require skills and specialization and must be coordinated to achieve the desired goal.  The project must be temporary in nature and not extended into other related projects. AMU-SC | By: Ashenafi B.
  75. 75 AMU-SC | By: Ashenafi B. Cont’d…
  76. 76  It provides an agency with the flexibility to work on critical projects.  The structure brings together the specialized talent that is often necessary to complete a project with great efficiency.  Decision making is decentralized to a level where information is processed properly and relevant knowledge is applied.  Extensive communication networks help to process large amount of information.  With decisions delegated to appropriate levels, higher management levels are not over loaded with operational decisions.  Resource utilization is efficient, because key resources are shared across several important programs or products at the same time.  Employee learns the collaborative skills needed to function in an environment characterized by frequent meeting and more informal interactions. AMU-SC | By: Ashenafi B. Advantages of Matrix Organization
  77. 77  Reporting for two supervisors which creates confusion.  The mistaken belief can arise that matrix management is the same thing as group decision making − in other words every one must be consulted for every decision.  Too much democracy can lead to not enough action. AMU-SC | By: Ashenafi B. Disadvantages
  78. AMU-SC | By: Ashenafi B. 78 VI. Project Organization
  79. AMU-SC | By: Ashenafi B. 79 VII. Divisional Organization
  80. © 2006 Prentice Hall, Inc. 12 – 80
  81. AMU-SC | By: Ashenafi B. 81  Production is the method of turning raw materials, or inputs in to finished goods or products in a manufacturing process.  Resources are of several types:  material,  Men/employees,  machine hours,  energy consumed,  space utilized and etc. Production or
  82. AMU-SC | By: Ashenafi B. 82 Four Factors of Production Land Entrepreneurship Capital Labour • Production is a co-operative process and not a job of any single factors.
  83. AMU-SC | By: Ashenafi B. 83  Effectiveness is a function of decision making process, resulting in a setting up of aims, goals, objectives and plans.  It is about doing the right task, completing activities and achieving goals.  Efficiency is concerned with how well the assigned task, as set out in the objectives, is being carried out.  It is about doing things in an optimal way, for example doing it the fastest or in the least expensive way. It could be the wrong thing, but it was done optimally. Effectiveness and Efficiency • To be able to increase manpower effectiveness and efficiency at all levels of an organization, what is required is motivation, training and education.
  84. AMU-SC | By: Ashenafi B. 84 Cont’d…
  85. AMU-SC | By: Ashenafi B. 85  Industrial Management is concerned with productivity (i.e. the effectiveness and efficiency of an organization).  Productivity means the efficient use of resources consumed for achieving the objective of an organization (i.e. production).  In most businesses, competition for the available market, forces the management of each enterprise to seek competitive advantage through the use of:  product improvements;  lower costs;  lower selling prices for the same or better quality of products; and  better service to customers. Productivity
  86. AMU-SC | By: Ashenafi B. 86 Cont’d… input of value output of value = ty Productivi /Partial-Measure  Productivity is defined as the ratio of value of output to the value of input (within specified period & quality).
  87. AMU-SC | By: Ashenafi B. 87  Productivity index is used to compare the productivity during the current year with the productivity during the base year.  Base year is any year which the company uses for comparative study. 𝑷𝒓𝒐𝒅𝒖𝒄𝒕𝒊𝒗𝒊𝒕𝒚 𝑰𝒏𝒅𝒆𝒙 = 𝑷𝒓𝒐𝒅𝒖𝒄𝒕𝒊𝒗𝒊𝒕𝒚 𝒅𝒖𝒓𝒊𝒏𝒈 𝒕𝒉𝒆 𝒄𝒖𝒓𝒓𝒆𝒏𝒕 𝒚𝒆𝒂𝒓 𝑷𝒓𝒐𝒅𝒖𝒄𝒕𝒊𝒗𝒊𝒕𝒚 𝒅𝒖𝒓𝒊𝒏𝒈 𝒕𝒉𝒆 𝒃𝒂𝒔𝒆 𝒚𝒆𝒂𝒓  The three major sources of information for constructing various types of productivity index are: 1. Product Identification Information 2. Accounting Information 3. Work Measurement Information Productivity Index
  88. AMU-SC | By: Ashenafi B. 88  The outputs and inputs of the company must be expressed in a common unit preferably in monetary value, say ETB value.  To compare productivity, indices are to be adjusted to the base year and must be stated in terms of base year ETB value. This is referred to as deflating the input and output factors.  Deflators are used to nullify the effect of changing price from one year to another. 𝑫𝒆𝒇𝒍𝒂𝒕𝒐𝒓 = 𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝒀𝒆𝒂𝒓 𝑷𝒓𝒊𝒄𝒆 𝑩𝒂𝒔𝒆 𝒀𝒆𝒂𝒓 𝑷𝒓𝒊𝒄𝒆 Deflator (i.e., Value/Price Adjustor)
  89. AMU-SC | By: Ashenafi B. 89  An increase in production does not necessarily by itself indicate an increase in productivity.  If the input of resources goes up in direct proportion to the increase in output, the productivity remains the same.  If input increases by a greater percentage than output, higher products will be achieved at the expense of reduction in productivity.  In short, higher productivity means to produce more with the same expenditure, or with a minimum increase in expense, or the same amount is produced at less cost in terms of resources. Cont’d…
  90. AMU-SC | By: Ashenafi B. 90  Or, productivity can be improved/increased by: a) by decreasing I/P but maintaining same O/P; b) by increasing O/P with same I/P; and c) by Increasing O/P and decreasing I/P to change the ratio favourably.  Productivity should not be confused with the cost of manufacture, although a plant with higher productivity will use less resources and its product is likely to be cheaper. Cont’d…
  91. AMU-SC | By: Ashenafi B. 91  Productivity can be measured as follows: Land Productivity:  Better seed, fertilizer and better method of cultivation may increase the yield from two quintals to three quintals. Hence, land productivity has increased by 50 percent. Material Productivity:  If a skillful worker is able to produce 300 formworks from 400 pieces of 2m  1m sheet metal, while an unskillful worker can only produce 250 out of the same material, then with the skillful worker the material was used with 20 percent greater productivity. Productivity Measurement
  92. AMU-SC | By: Ashenafi B. 92 Machine Productivity:  If a machine tool has been producing 100 pieces per a working day, and through the use of improved cutting tool and/or proper maintenance procedure its output in the same period is increased to 120 pieces, the productivity of that machine has been increased by 20 percent. Productivity of Man:  If a shoe maker has been producing 30 pieces of leather parts per hour, and if improved methods of work enable him to produce 40 pieces per hour the productivity of that man has increased by 33.3 percent. In general, a low level of productivity implies a low growth of economy. A low growth of economy meant, low income leading to low standard of living and a low level of savings, resulting in low level of investment. Cont’d…
  93. Standard of living Economic Growth Productivity Growth Employment Growth TFP Growth Capital Intensity Growth + + Cont’d…
  94. Example-1 Total tangible output Total tangible input
  95. AMU-SC | By: Ashenafi B. 95  Products X and Y are being manufactured by a company using materials A and B. Both materials are equally suitable. Product X is expected to sell at 75 Birr per unit (Birr/unit) and product Y at 35 Birr/unit. The operating data is given below: Compare the partial productivity of material, labour, and electric energy and total productivity in using materials A and B. Comment on the relative advantage of using either of the materials. Material A Material B Output of Product X 200 units 400 units Output of Product Y 300 units 200 units Quantity of raw material usage 1000 kg 1000 kg Labour usage 300 man-hours 250 man-hours Electric energy consumption 1000 kWh 1500 kWh Cost of raw material per kg 22 Birr 33 Birr Labour cost per man-hour 10 Birr 10 Birr Electric energy per kWh 2.0 Birr 2.0 Birr Example-2
  96. AMU-SC | By: Ashenafi B. 96 Solution (Example-2)
  97. AMU-SC | By: Ashenafi B. 97 Solution (Example-2)
  98. AMU-SC | By: Ashenafi B. 98  Productivity is affected by many external and internal factors.  Some of the external factors influencing productivity are:  The national and international policies;  Organizational policies;  Infrastructure supports;  Cultural practices;  The availability of technology and natural resources;  Climate, and  Incentives and information. Productivity Improvement
  99. AMU-SC | By: Ashenafi B. 99  Internal factors that are identified as hindering the rise of productivity are:  Unsuitable personnel policies leading to a low level of satisfaction and involvement;  Poor maintenance system and low level of maintenance awareness;  Improper selection and training of personnel;  Inappropriate choice of design, tools, materials and equipments;  Undefined standardization and quality policies;  Inadequate plant layout and materials handling systems;  Poor planning, controlling and communication systems; &  Unsafe and unhealthy working environment. Cont’d…
  100. AMU-SC | By: Ashenafi B. 100 A. Short-term Strategy  The first strategy is improving organizational planning and control.  By implementing planned maintenance of machinery and effective production system, plants would show an increase in machine productivity and reduction in maintenance cost.  The second action is increasing manpower efficiency and effectiveness at all levels.  As we know, effectiveness and efficiency are the main tools (pillars) of productivity. Productivity Improvement Strategy
  101. AMU-SC | By: Ashenafi B. 101  The third short-term line of attack is improving operation methods.  The techniques of method study involve breaking a process into detailed components. The study may result in elimination of an activity, combination of several activities, change of sequence of activities, shortening duration of activities and etc.  In fact, to achieve this, effective implementation of engineering method is required. Cont’d…
  102. AMU-SC | By: Ashenafi B. 102 B. Medium-term Strategy  At this stage the firm may require capital to simplify and improve the products, and reduce variety.  The analysis consists of common sense questions to come up with effective solutions like substitution of alternative materials, elimination of parts where special designs have been specified, redesign, etc. C. Long-term Strategy  Properly selected new machineries, well organized departments and proper layout will undoubtedly contribute to an increase in productivity.  Furthermore, research and development is the backbone for productivity increment. Cont’d…
  103. © 2006 Prentice Hall, Inc. 12 – 103 PRODUCTIVITY IMPROVEMENT TECHNIQUES Material Based Techniques Technology Based Techniques Investment Based Techniques Employee Based Techniques Management Based Techniques Product Based Techniques Task Based Techniques R e d u c i n g a d m i n i s t r a t i v e c o s t Increasing value added Increasing contribution Increasing profit M a i n t e n a n c e p l a n n i n g a n d c o n t r o l L a y o u t G r o u p t e c h n o l o g y C A D , C A M , C I M , C A P P C o m p u t e r a p p l i c a t i o n s I n v e n t o r y c o n t r o l M R P Quality control Material handling improvement Material reuse and recycling Work study Job evaluation Scheduling Ergonomics Job safety Computer Aided data processing Product design R & D Product standardization P r o d u c t r e l i a b i l i t y i m p r o v e m e n t Value engineering C o m m u n i c a t i o n i m p r o v e m e n t J o b r o t a t i o n W o r k c o n d i t i o n i m p r o v e m e n t B r a i n s t o r m i n g Q u a l i t y c i r c l e s Training and education Financial Incentives Resource Mgt. Material Mgt. Maintenance Mgt. Cost Mgt. Production Mgt. Marketing Mgt. Productivity Improvement Techniques
  104. AMU-SC | By: Ashenafi B. 104 1. Define Industrial Management and explain its concept briefly. (2%) 2. Briefly explain the characteristics (i.e. major skills) of a manager? (3%) 3. Describe the various techniques of improving productivity. (3%) 4. Justify the following statement: (2%) "Productivity is a means for increasing the welfare and wealth of the nation." Quiz!! (weight: 10%)
  105. © 2006 Prentice Hall, Inc. 12 – 105 The End!!